Circular clarifying the Scope of principal and agent relationship under Schedule I of CGST Act, 2017 in the context of del-credere agent

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The Central Board of Indirect Taxes and Customs (“CBIC”) vide Circular No. 73/47/2018-GST dated November 05, 2018 has clarified the Scope of principal and agent relationship under Schedule I of CGST Act, 2017 in the context of del-credere agent. Further to clarify the Concern regarding the valuation of supplies from Principal to recipient where the payment for such supply is being discharged by the recipient through the loan provided by DCA or by the DCA himself. The following issues are arising out of such loan arrangement which have been examined and the clarifications on the same are as under:

Sl. No. Issue Clarification

1

Whether a DCA falls under the ambit of agent under Para 3 of Schedule I of the CGST Act?

As already clarified vide circular No. 57/31/2018-GST dated September 04, 2018, whether or not the DCA will fall under the ambit of agent under Para 3 of Schedule I of the CGST Act depends on the following possible scenarios:

  • In case where the invoice for supply of goods is issued by the supplier to the customer, either himself or through DCA, the DCA does not fall under the ambit of agent.
  • In case where the invoice for supply of goods is issued by the DCA in his own name, the DCA would fall under the ambit of agent.
2 Whether the temporary short-term transaction-based loan extended by the DCA to the recipient (buyer), for which interest is charged by the DCA, is to be included in the value of goods being supplied by the supplier (principal) where DCA is not an agent under Para 3 of Schedule I of the CGST Act?

In such a scenario following activities are taking place:

  1. Supply of goods from supplier (principal) to recipient;
  2. Supply of agency services from DCA to the supplier or the recipient or both;
  3. Supply of extension of loan services by the DCA to the recipient.

It is clarified that in cases where the DCA is not an agent under Para 3 of Schedule I of the CGST Act, the temporary short-term transaction-based loan being provided by DCA to the buyer is a supply of service by the DCA to the recipient on Principal to Principal basis and is an independent supply. Therefore, the interest being charged by the DCA would not form part of the value of supply of goods supplied (to the buyer) by the supplier. It may be noted that vide notification No. 12/2017-Central Tax (Rate) dated June 28, 2017 (S. No. 27), services by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount (other than interest involved in credit card services) has been exempted.

3

Where DCA is an agent under Para 3 of Schedule I of the CGST Act and makes payment to the principal on behalf of the buyer and charges interest to the buyer for delayed payment along with the value of goods being supplied, whether the interest will form a part of the value of supply of goods also or not?

In such a scenario following activities are taking place:

  1. Supply of goods by the supplier (principal) to the DCA;
  2. Further supply of goods by the DCA to the recipient;
  3. Supply of agency services by the DCA to the supplier or the recipient or both;
  4. Extension of credit by the DCA to the recipient.

It is clarified that in cases where the DCA is an agent under Para 3 of Schedule I of the CGST Act, the temporary short-term transaction-based credit being provided by DCA to the buyer no longer retains its character of an independent supply and is subsumed in the supply of the goods by the DCA to the recipient. It is emphasised that the activity of extension of credit by the DCA to the recipient would not be considered as a separate supply as it is in the context of the supply of goods made by the DCA to the recipient.

It is further clarified that the value of the interest charged for such credit would be required to be included in the value of supply of goods by DCA to the recipient as per clause (d) of sub-section (2) of section 15 of the CGST Act.

Further Circular can be accessed at: http://www.cbic.gov.in/resources//htdocs-cbec/gst/Circular-No-73.pdf;jsessionid=F9FE43E59D7E3BA0EA9A2D7BFF2D6423

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